Insurance companies are becoming convinced that global warming is real and that the warming trend may help explain the significant adverse change in weather-related losses across many lines of insurance. The losses resulting from Sandy and other powerful storms are definitely impacting the cost of insurance across our own region and in the nation as a whole.
Insurance company stock analysts are not surprised that most companies are seeing improvement in their profits. The softest market had been business insurance rates. Several factors have required that rate increases be implemented to return carriers to profitability: the loss cost trends, low investment income environment as well as the severity and scale of natural disaster losses. For the first time in more than 6 years, business insurance rates are continuing to rise modestly.
Unlike past “hard markets,” the current 5-9% increases for business insurance clients with good claims experience are not causing widespread dislocation. For strategic reasons, most of our clients are choosing to remain with their incumbent carriers. Because pricing changes have been relatively modest, the perception is that client trust and loyalty will be reciprocated by incumbent insurers if and when rates spike more drastically.
Other sectors of the insurance industry are seeing rate changes, too. The widespread impact of recent storms has caused personal insurance premiums to rise across the board. Rate hikes are affecting customers who buy their insurance from both independent agents [multi-carrier representation] and direct writers such as Allstate and State Farm. Higher limits from higher inflation adjustments combined with rate increases can push premium hikes on some policies into double digits.
The third segment of our industry, the life and health insurance space, is also under significant financial pressure. In order to maintain or improve profitability, many life insurers are increasing rates and/or withdrawing certain plans to offset the adverse impact of historically low interest rates. It is still too early to predict the level at which health insurance rates will steady under the new health care law. Most experts believe there will be a two or three-year period of change before rates stabilize within any expected range.